By David Lawder
WASHINGTON (Reuters) – International Monetary Fund Managing Director Kristalina Georgieva on Thursday rebuked Britain over its planned tax cuts, telling its finance minister and central bank chief that their policies should not be contradictory.
Her comments during the IMF and World Bank annual meetings in Washington highlighted concerns about financial market turmoil triggered by Britain’s proposed “mini-budget” of increased spending and tax cuts that were threatening to overshadow bigger economic challenges, such as the fight against inflation and the impact of the war in Ukraine.
Georgieva told a news conference that she discussed with British finance minister Kwasi Kwarteng and Bank of England Governor Andrew Bailey the need for “policy coherence and communicating clearly … so in this jittery environment there would be no reasons for more jitters.”
“Our message to everybody, not just to the UK, at this time, fiscal policy should not undermine monetary policy because, if it does, the task of monetary policy only becomes harder and it translates into the necessity of even further increases of rates and tightening of financial conditions,” Georgieva said. “So don’t prolong the pain.”
The IMF chief said that any recalibration of policies should be led by evidence. And right now, the evidence points to the need for governments to keep up their fight against inflation, even though doing so increases the risk of a global recession.
AVOIDING SPOTLIGHT
Kwarteng has taken a low profile at the first IMF and World Bank in-person meetings in more than three years, and was not present at a G20 finance ministers and central bank governors meeting on Thursday, according to British media reports.
In a BBC television interview on the sidelines of the meetings, Kwarteng said he was focused on delivering the mini-budget and economic growth after media reported that the British government was considering reversing parts of the plan.
“Our position hasn’t changed. I will come up with the medium-term fiscal plan on the 31st of October, as I saidearlier in the week, and there will be more detail then,” Kwarteng told the BBC.
Asked repeatedly about the reports of a possible U-turn onhis plan to freeze the corporate tax rate – rather than allow it to increase, as planned by his predecessor Rishi Sunak – Kwarteng repeated that he was focused on his growth plan and added that he expected to continue as finance minister.
Georgieva said the chance of a global recession was now about 25%, adding that the IMF is still urging central banks to keep tightening monetary policy to fight inflation. She said this would bring down inflation despite the ongoing war in Ukraine because it would cool demand, along with high energy and food prices.
But Georgieva said the Bank of England’s decision to intervene in sovereign debt markets “was appropriate” to preserve financial stability and does not interfere with the bank’s main monetary policy objectives of price stability.
(Additional reporting by Leika Kihara and William Schomberg; Editing by Chizu Nomiyama and Paul Simao)
